To put it simply, Forex, also called foreign exchange or FX, is the market place where currencies are traded by banks, institutions, investors or individual traders with turnover over $5.3 trillion per day.
Forex gives you the opportunity to trade a wide range of currencies versus one and another. Traders expect to earn profit on the changes in the exchange rates between currencies which they buy or sell. In practice, forex traders speculate on the direction of future exchanges rates like whether Swiss Franc (CHF) will appreciate or depreciate versus another currency, such as the Euro (EUR).
If the exchange rate goes the direction that trader expects, it is a profit. However if the rate goes against the direction that trader bets, it is a loss and unfortunately this is the case for %90 of the traders according to the statistics.
Advantages of Forex
Forex market is decentralized, largest and the most liquid market in the world. There is not one single exchange for forex as investors can trade currencies 24 hours a day by the market place that is open at that particular time. For example, you cant buy or sell stocks at spot market once the stock exchange is closed.
However, there is no such limitation in forex trading as currencies are traded continiously at any time across a vast network of banks, investors, funds and firms. You cant buy Apple shares after the US stock exchange is closed wheras you can buy euros and sell dollars even past midnight.
With over $5.0 trillion turnover per day, foreign exchange market is the largest and the most liquid in the world. To put this in the perspective, consider that New York Stock Exchange’s daily turnover averages to $300 billion.
Is Forex Trading Profitable?
I am pretty sure that every single of you who is reading this blog is fantasizing a future of financial freedom and flexibility of working at home and living wherever they wish. I strongly believe that forex trading offers this prospects. I personally know plenty of forex traders out there who are living the dream. But it takes a lot of time and financial pain to get to level. So how can you reach that level and live the dream. Please read this article where I have tried to explain whether forex trading is profitable or not.
How Does a Forex Broker Make Money?
Allow me to answer this question based on the nature and revenue model of forex brokers. In very simple terms, there are two types of forex brokers with respect to their revenue model; markets makers and others. Markets makers are believed to be the largest group who take the exact opposite direction of their clients’s trade. This implies that these type of brokers make money when clients (you) lose and lose when clients profit.
Others (STP, ECN brokers) let traders access to the global liquidity and they execute trades at the best price available and the fasted execution time offered by their liquidity providers. Since this type of brokers’ revenue model is based on the commission on every trade that the clients execute, more the clients trade more they earn. Please refer to this article where I have explained how forex brokers make money in further detail.
Over a thousand forex brokers all around the world allow you to access this market place at the convenience of your computer and mobile device with great privilages as such leverage, lower commissions compared to banks, wide range of currency pairs and ability to invest in commodities and indices. But which one to choose? Which is the best one for you? Please check my reviews.